Focus on Our Country ,Our Fundamentals and Our Stocks

over the last 25 years, we have created enough value and if you pick the right stock, you can withstand volatility and end up making more money than most other asset classes in Indian equity market. Edited excerpts



I think we have to differentiate global market vis-a-vis India. In my 15 years' career, I have always read a headline that the best performing hedge fund is predicting a correction. Now even a broken watch gives time correctly twice in a day and this best performing hedge fund or the best performing market guru does not remain constant, it keeps on changing. I have also seen person who is known as predictor of gloom, boom and doom every year talking about Indian markets crashing and correcting. If I had followed his advice in 5 years, I would have probably lost my job 15 times.

Let us separate the doom sayers because it is their job to give extremely wild predictions. If there is 0.01 per cent probability of its coming correct, for life they become hero. Let us focus on our fundamentals. Is the Indian market running little bit ahead of its fundamentals? The answer is yes. If there is a steep correction in Indian market because of some global volatility like it happened in October 2008, I think it will be temporary. It will be short term and markets will bounce back very quickly after that uncertainty or volatility is over. It does not mean that we cannot have correction in this market. Certainly there could be correction, but there would not be deep, they would not be lasting.

Now in that context, let us also understand yesterday's two central bank action or inaction as you called it. The Bank of Japan after providing liquidity, after keeping interest rates in negative for years, ran up debt to the extent of 250% of GDP. After Bank of Japan becoming a significant owner in majority of Japanese stocks, now they are going into a territory where they are saying that will continue to buy government securities in a manner so that the yield curve will be as per our requirement, yield curve will be as per our need. Now these are all uncharted territory. This is where central bank probably gives a put options to the equity market. Where will this end who knows but till such time it is continuing, you have no option but to remain participant in the equity market, otherwise you will end up a significant part of rally.

On the US Fed side also, as child we were always reading that story of tiger coming, tiger coming, tiger coming, in December 2015 while raising US Fed rate after a decade, they indicated four rate hikes in 2016. Now, it will be just about one. So, clearly they also are getting data dependent, they also are trying to give put option to the equity markets to sustain growth. Probably, future of America is what the past of Japan is. So my request to viewers will be do not really go by the wildest predictions, do not really go by the extreme forecast that is unlikely to happen. Let us focus on our country, our fundamentals, our stocks. Over last 25 years, we have created enough value and if you pick up stocks rightly with right temperament and you can withstand volatility which might come on the way, I am sure you will end up making more money than most other asset classes in Indian equity market.

For equities to do well, two things have to be in place - attractive valuations and lot of liquidity. There is lot of liquidity and there will be lot of liquidity. Valuation is where the discomfort is. I mean what you want to buy is not cheap, what you do not want to buy is really cheap. Now you may buy stocks but the stocks may see a lot of time-wise correction because earnings recovery is already in the price.

It is absolutely brilliant observation. What you want to buy is not cheap and what you do not want to buy is probably available cheap. But then every day you do not get a batting pitch to bat upon. That batting pitch was available in February 2016. Now, if you were sleeping on that day, bad luck to you, the market is not going to give you an easy opportunity so that you can make money sitting idly on a beach. It does not work that way. Tendulkar became the greatest batsman by not only batting on the batting pitch but he also took the battle on the balling pitch. He took the balls on his chin, on his helmet, on his bat and that is where he became Tendulkar.

So, please do not expect markets to give you easy opportunity to make money and especially in today's market you have to pick up stocks right correctly, you have to have right temperament to withstand volatility and you have to have long-term investment horizon to make money. Making money is not easy. Who told you that it is easy to become billionaire is wrong, otherwise all of us would have become billionaires.

The common conundrum of late is that we have been hearing rhetoric and I started off our discussion the way that there could be a correction now. I take on board your point that do not get lured by or do not get bothered by a lot of what is happening but we have to admit that growth has not come back in a hurry and there is a remote possibility of a correction that may come in and give an opportunity to buy. My question to you is should people who are not SIP investors but actual stock investors wait for an opportunity right now? Could that come in or do you not foresee a chance of a meaningful correction coming in?

: I think for the stock investors even today in this market there are opportunities to buy stocks now whether they are fully priced or fairly priced. There is value as a stock picker. You can start buying stocks even in today's market. Of course your rate of expected return will be lower than what if markets correct 10-15% but if you are a stock picker you have no option but to pick up stocks depending upon your time horizon.

Now if you are not a stock picker, there is a very simple common sense technique of asset allocation. Today's fair value of market have neutral allocation to equity if your risk profile is not very aggressive. Within that risk profile if there is a correction, you can always increase your allocation to equity. No one says that being a stock investor, you have to put 100% of your net worth in stock market. If there is correction, you can always shift some allocation from debt and other portions into stock market.